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FEDERAL RESERVE BOARD 20 November £ § , 1928, St. 5970. WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE T O THE FEDERAL RESERVE BOARD SUBJECT: Closing of Books on December 31, 1928. Dear S i r ; In accordance with the usual custom i t w i l l be app r e c i a t e d i f the r e s o l u t i o n of your Board of Directors f o r the payment of the semi-annual dividend and r e que st s f o r a u t h o r i t y to charge earnings with depreciation allowances, r e s e r v e s f o r probable l o s s e s , e t c . , are received a t t h e Board's o f f i c e s not l a t e r than December 10, 1928, and a r e accompanied with the following information: 1. Estimated gross earnings, current expenses, add i t i o n s to and proposed deductions from current n e t e a r n i n g s , and net earnings a v a i l a b l e f o r surplus and f r a n c h i s e tax f o r the calendar year 1928. 2. Indebtedness to the Federal reserve bank of (a) suspended banks and (b) banks considered to be in a s e r i ously overextended condition, giving the names of the banks, indebtedness of each on November 30, character of s e c u r i t y , i f any, and probable l o s s in the case of each bank. The general procedure followed in the past with r e f e r e n c e to c h a r g e - o f f s , depreciation and other r e s e r v e s , t r a n s f e r s to surplus account and payment of f r a n c h i s e tax, which i s covered by the attached memorandum, w i l l be followed a t the end of t h i s y e a r . Very t r u l y yours, Walter L. Eddy, Secretary. Enclosure. LETTER TO ALL CEA.IBMEET * Federal Reserve Boarii, November 19, 1927. GENERAL PRACTICE OF FEDERAL RESERVE BOARD REGARDING- DEPRECIATION RESERVES ON BANK PREMISES, RESERVES FOR LOSSES CN PAPER OF FAILED BANKS, AND OTHER CHARG-ES TO CURRENT NET EARNINGS, AND METHOD OF DETERMINING FRANCHISE TAXES TO BE PAID BY FEDERAL RESERVE BANKS 1. Bank Premises, ( a ) Land. No charges against current net earnings w i l l be authorized "by the Board to cover depreciation on land where the estimated market value of the land i s equal to or in excess of i t s net book v a l u e . (b) Buildings. The Board w i l l in general a u t h o r i z e the banks to charge current net earnings each year with a d e p r e c i a t i o n reserve 011 bank b u i l d i n g s , including v a u l t s but excluding f i x e d machinery and equipment, of not exceeding 2 per cent of t h e i r estimated replacement c o s t , such replacement cost to be determined i n a manner approved by the Board. Where the book value of a building i s in excess of replacement c o s t , the Board w i l l consider a request f o r permission to charge off an amount s u f f i c i e n t to reduce the book value to e s t i mated replacement c o s t . * ( c ) Fixed machinery and equipment. The Board w i l l author i z e the banks to charge c u r r e n t net earnings each year with a d e p r e c i a t i o n r e serve of not to exceed 10 per cent of the c o s t of f i x e d machinery and equipment, such as b o i l e r s , engines, dynamos, motors, power pumps, e l e v a t o r s , h e a t i n g , plumbing, l i g h t i n g , and v e n t i l a t i n g systems, pneumatic tubes, r e f r i g e r a t i o n p l a n t , automatic f i r e s p r i n k l e r equipment, and vacuum - c l e a n e r s . 2. Reserves f o r l o s s e s on paper of suspended banks and banks in an overextended c o n d i t i o n . Authorizations to set a s i d e reserves to cover l o s s e s on paper of suspended banks or banks in an over-extended condition w i l l be l i m i t e d to such a c t u a l l o s s e s , i n excess of r e s e r v e s already c a r r i e d , as the bank may reasonably be expected to s u s t a i n on such paper. 3. F u r n i t u r e and equipment. I t w i l l be the general p r a c t i c e of the Boarc. to authorize the banks to charge off a t ' t h e end of the year a l l f u r n i t u r e and c r z i p meat purchased during the current y e a r . 4 . Other charges to current not e a r n i n g s . Where a bank d e s i r e s to s e t -.iyt any reserve other than those mentioned above or to make any other unusual axarge against c u r r e n t earnings a t the en$. of the y e a r , f u l l and complete information should be f u r n i s h e d the Board regarding the n e c e s s i t y f o r such charge. 5. Surplus and f r a n c h i s e taxes. A f t e r a l l current expenses, dividends, dep r e c i a t i o n and other r e s e r v e s , and c h a r g e - o f f s authorized by the Board have been provided f o r , any remaining n e t earnings s h a l l be d i s t r i b u t e d as f o l l o w s : (a) Transfer t o surplus account a l l net earnings u n l e s s such t r a n s f e r w i l l r e s u l t i n the bankfc surplus account being in excess of i t s subscribed c a p i t a l , i n which case only such amount should be t r a n s f e r r e d as i s necessary to increase the surplus account to an amount equal to the subscribed c a p i t a l . (b) D i s t r i b u t e a l l a v a i l a b l e net earnings a f t e r the b a n k ' s surplus account i s equal to i t s subscribed c a p i t a l a s follows: (1) Transfer 10 per c e n t to surplus account. (2) Pay 90 per cent to United S t a t e s Government as a f r a n c h i s e tax. rC-7-7 4 2 8
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